Posted: August 12th, 2013
The economies of India and China have been on a rapid growth rate over the past decades. Their growth rate can be attributed to their economic reform programs that have made them a global model. These emerging giants have made a significant impact on the global economy. They are also projected to transform the global market in the near future. It is estimated that that the two emerging Markets will contribute up to 40 percent of global growth in the over the next years. The economies are also set to evolve economically. However, the two countries make a considerable contribution towards the growth and sustainability of global economy. The two countries also understand the level of interdependence of the global economy and their responsibility towards reforming global institutions.
India’s current economic situation has marked the departure from the history of restrictive investment policies, production and licensing during the 1960s and 70s. These policies particularly targeted foreign investors. The liberalization process began in the 1980s. Since this period, India’s GDP growth rate has surged. Between 2003 and 2007, the GDP growth has averaged at 8.6 percent. There are numerous factors responsible for this growth. Net exports have more than doubled in the past year. Local and foreign investment has also been on a steady rise. In addition, India has set plans towards effective and efficient economic reforms.
Similarly, China has also marked major economic transformations. China is also on the course of economic reforms to attract key players in the global market. The competitive environment in China has also become intense and more favorable for investors. However, local industries are also protected through sustainable policies. China is also among the global leaders in the global trade. This has also increased the level of exports in the country. These are among the competitive advantages India and China enjoy in the global trade. These factors have made India and China major economic catalysts in the global economy.
Both India and China play a key role in increasing the number of goods and services in the global market. Consequently, the increase in goods has led to diversification of the economy (Spilsbury, 56). Diversification provides worldwide consumers with a wide variety of goods and services. Structural changes in India and China have improved the output from their manufacturing and service industry. Exports from India doubled within three years. China is also a leading exporter to the universal market. In addition, the countries support their indigenous industries in order to export their national products. The increase in exports signifies the increase in demand for Chinese and Indian products.
Increased demand from China and India has increased the level of competitiveness of the global market. Market competitiveness is essential toward the production of quality goods and services (Vietor, 56). In addition, competition makes the goods more affordable and accessible for consumers. It is widely accepted that the products from India and China are relatively cheaper. This has influenced other manufacturers and producers to reduce their prices too. These commodities include motor vehicles and spare parts, electronics, equipment, machinery and other products. For instance, the Indian Tata motors manufacture cheap and quality vehicles for the world economy. The cell phone industry in China also contributes to the reduced prices and increase in variety for consumers across the globe.
China and India are instrumental towards increasing the level of innovation in the global scene. Innovation is essential for the growth of the world market. China and India are rank among the leading innovators in the global innovation index. Innovation includes products, information, technology, and the area of research and development. These emerging markets serve customers of limited means. The perception that quality, innovative and design products are a reserve for the wealthy is slowly being altered by China and India. For instance, China has established itself in IT innovation particularly with the smart phone technologies and robotics. India’s auto industry is also using innovative methods (Dahlman, 78). Tata motors created the $US 2900 Nano. This high quality costs less than other cars in the market.
Another area of innovation is constituted in research and development. China and India account for 20 percent of the total global research and development investment. The results from research and development offer opportunities for growth. The results are also used in the creation of innovative products. China and India use their research to develop new products that appeal to their consumers. The product strategies provide the market with a wide array of goods and services. Customers therefore have access to a wide variety of products. Competition is increased and the quality of goods improves. This also offers a challenge to western companies to foster their own innovation solutions.
Growth at the national level in India and China has a ripple effect on the world economy (Engardio, 45). Both states make considerable growth in the development of the world market. Their involvement in the World Trade Organization also makes them pivotal elements for global development. A country’s Gross Domestic Product is important towards global economic growth. If the GDP increases, the economy improves. However, reduction in GDP causes low growth rates. The two countries have increased their GDP in recent years to improve the world economic system. For instance, since joining the World Trade Organization in 2001, China has been the major contributor of economic growth worldwide at 13 percent. In addition, it contributed 14.3 percent in worldwide economic growth in 2005. It was ranked second after the United States.
China and India are responsible for maintaining global economic stability. As the fastest growing world economies, China and India have a considerable share of the world market. Therefore, they are tasked with the maintenance of economic stability and preventing an economic crisis. One of the major economic crises of the world was the Great Economic Depression of the 1930s. This crisis was influenced by numerous factors. This included the effects of the First World War. Therefore, most of the countries that had a great market share were affected and plunged into recession. Consequently, the entire world was affected. The stability of China and India has been resourceful towards preventing a global crisis in recent years.
In recent years, the world market has experienced an economic downturn. However, strong growth of the Indian and Chinese economies is factors for global stabilization. Many economies had increased their exports to India and China in the period of economic slowdown. In addition, the recession and credit crisis in the US threatened to recreate a period of economic crisis. However, stability in India and China reduced the cost of poor growth in the US. Growth in India and China increased in the same period. For instance, China had a rate of 8.7 percent. Consequently, some countries benefited by averting recession. The involvement of both countries in the World Trade Organization fosters their role in stabilizing the world economy (Pelle, 79).
China and India are also crucial for economic recovery. Stability in India and China is crucial for economic recovery after the global slowdown. Europe is currently battling a debt crisis and financial uncertainty. China and India will be important towards strengthening these economies. Indian and Chinese investment collaboration with these countries will be pivotal toward their economic recovery. Europe has already attempted to make the investment environment suitable for both states. This includes further strengthening their economic ties. China increased investments in the US economy in order to help the country recover form recession (Berlatsky, 102). At the end of 2010, China had invested over $9 billion. This has helped to ease the credit crisis, create more job opportunities and expand the US market. Recovery of the US market as a global leader will ultimately cause a recovery in the world market.
China and India also provide financial support to countries with critical financial circumstances. Financial aid helps to cushion the state form the adverse effects of the crisis. Accordingly, the impact of the crisis can also be averted from other dependent and trading economies. In the past, India and China received donor funding from states such as the United Kingdom and United States. British had been the largest donor to India up to 2011. However, they have emerged over the past decades transitioning towards becoming donor countries. India allocated close to $547 million towards donor related activities from its budget. Aid has been targeted to Africa in order to increase the rate of development. China also increased aid to America in order to counter the economic situation (Weaver, 122).
India and China also offer the global market investment opportunities. Both countries have been set among the top investment destinations in the world. China and India have large market and consumer potential. Their economic reforms also offer suitable destination investments. The two countries were also not hugely affected by the global economic downturn. For instance, India’s growth rate was at 7 percent in 2011. Investment destinations are fundamental towards the development of the world economy. They increase local and foreign competition to earn government revenue. Government revenue is used towards national development. This also helps to stabilize the economy in turn affecting worldwide stability. Investment in India and China is useful for the improvement of the world market.
China and India also provide available market for merchandise and services offered in the world market. The two countries have the largest population numbers on earth. Therefore, their population offers ready market for goods and services. However, population alone cannot be a factor for corporate organization to consider their market reach. Therefore, other factors that are considered include infrastructure, government policy and level of income. The middle class in any country is an important element that drives the national economy. India and China’s middle class has been rising over the past years. The middle class in these countries are a target market for the global services and goods produced.
As the global influence of both states grows, they can initiate reforms and empower the global economic institutions. China and India’s economic growth offers them some power on matters related to the world market. This can be translated to influence major decisions (Siebert, 87). In addition, they can reduce the influence of western countries on the global scene. Both countries are members of BRC. These states are associated as the major emerging economies of the world. In 2010, these countries increased their influence on global matters by having 6 percent voting shares in the IMF. China becomes the third biggest member of the IMF. Therefore, both countries can create and facilitate policies that will be effective to the global economy. In addition, they can initiate and foster policies that will promote global development.
Although both countries have had a positive impact on the world market, there have also been some negative implications. Both states have accelerated growth rates. However, their economic model may be a hindrance in the long-term. The increase might neglects quality at the expense of increasing the level of growth and GDP. For instance, China is building apartment blocks, high-ranking office buildings and shopping malls to replace old buildings and residential areas. This large-scale approach towards rapid GDP growth also causes older buildings and the environment to be destroyed. Therefore, quality has been neglected in both countries. Low quality goods have increased in the market leading to lack of consumer confidence. In addition, the products also affect the health of the consumer. The level of income gap has also increased in both countries.
The growth in India and China has also had a negative impact on the environment. Some level of environmental consequences has been coupled with the overall growth. Growth of industries has had a negative role to play on the environment. Dynamic process involved in their innovation has also destroyed the environment in sections of the country. For instance, the textile sector has led to environmental deterioration. Falling quality in products because of demand also creates health risks. The automobile industry in India is a good example of the economic implications. In addition, the population growth in both states also poses economic threats.
In conclusion, despite their growth both countries are faced with numerous challenges. Some of these challenges include population increase, increase in disparities, the poor population, and the impact of manufacturing on the environment. Both countries have formulated policies in order to counter these challenges. These policies are set to reduce the impact of production activities on the environment. The contribution of China and India towards the global market has been essential towards growth and stability.
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